U.S. Markets closed

Edited Transcript of CDR earnings conference call or presentation 30-Oct-19 9:00pm GMT

Q3 2019 Cedar Realty Trust Inc Earnings Call

Port Washington Nov 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Cedar Realty Trust Inc earnings conference call or presentation Wednesday, October 30, 2019 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Bruce J. Schanzer

Cedar Realty Trust, Inc. - President, CEO & Director

* Nicholas Partenza

Cedar Realty Trust, Inc. - Director of Financial Reporting

* Philip R. Mays

Cedar Realty Trust, Inc. - Executive VP, Treasurer & CFO

* Robin McBride Zeigler

Cedar Realty Trust, Inc. - Executive VP & COO

================================================================================

Conference Call Participants

================================================================================

* Collin Philip Mings

Raymond James & Associates, Inc., Research Division - Analyst

* Todd Michael Thomas

KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings. Welcome to Cedar Realty Trust's Third Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Nicholas Partenza, Director, Financial Reporting. Mr. Partenza, you may begin.

--------------------------------------------------------------------------------

Nicholas Partenza, Cedar Realty Trust, Inc. - Director of Financial Reporting [2]

--------------------------------------------------------------------------------

Good evening, and thank you for joining us for the Third Quarter 2019 Cedar Realty Trust Earnings Conference Call.

Participating in today's call will be Bruce Schanzer, Chief Executive Officer; Robin Zeigler, Chief Operating Officer; and Philip Mays, Chief Financial Officer.

Before we begin, please be aware that statements made during the call that are not historical may be deemed forward-looking statements, and actual results may differ materially from those indicated by such forward-looking statements. These statements are subject to numerous risks and uncertainties, including those disclosed in the company's most recent Form 10-K for the year ended 2018, as updated by our subsequently filed quarterly reports on Form 10-Q and other periodic filings with the SEC. As a reminder, the forward-looking statements speak only as of the date of this call, October 30, 2019, and the company undertakes no duty to update them.

During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see Cedar's earnings press release and supplemental financial information posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures.

With that, I will now turn the call over to Bruce Schanzer.

--------------------------------------------------------------------------------

Bruce J. Schanzer, Cedar Realty Trust, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Nick. Good evening and welcome to the Third Quarter 2019 Earnings Call for Cedar Realty Trust.

With me, as always, are my senior management colleagues, and dialed in are many of the members of team Cedar. I want to sincerely thank them for their commitments to our core values of collegiality, collaboration and everyday excellence.

I will keep my comments for the quarter brief. We continue advancing our redevelopments and have made terrific strides on the leasing front. I will let Robin spend more time on the redevelopments in her prepared remarks, though it is worth highlighting that we broke ground on our value-add redevelopment project at Fishtown Crossing and continued making good progress executing that project as well as our larger mixed-use projects. I would note on the leasing front that this has been one of the better quarters in recent memory in terms of leasing volume and spreads. Leased occupancy in our core portfolio continues to grow, and ignoring redevelopments which might be choppy as we incur additional intentional vacancy, we anticipate continued positive momentum in our core portfolio in the quarters to come. There were a few large deals that were signed that certainly contributed to our results, most notably the Urban Air lease at Trexler Mall that backfilled a vacant box previously occupied by the now bankrupt Bon-Ton. My compliments to Tim Havener and his leasing team for their efforts this quarter.

Of course, the elephant in the room is our low share price. We continue to believe that there is a meaningful disconnect between our share price and our intrinsic value. We have observed softness in the investment sales market for shopping centers and a slight reduction in volume. However, there still does appear to be liquidity for our asset type and reasonable visibility as to their private market value. We hope that -- as we continue to successfully execute on our business plan that our stock price will likely appreciate and better reflect what we believe to be our warranted value.

With that, I will give you Robin.

--------------------------------------------------------------------------------

Robin McBride Zeigler, Cedar Realty Trust, Inc. - Executive VP & COO [4]

--------------------------------------------------------------------------------

Thanks, Bruce. Good evening.

Our leasing team has had one of the strongest quarters in the past 18 months. During third quarter 2019, a total of 576,200 comparable square feet was leased at a cash spread of 8.5%. This represents 14 new leases with a spread of 28.4% and 26 renewals with a spread of 0.9%. The renewal spread increases to 2.3% with the exception of an anchor deal executed which sacrificed some spread to solidify occupancy at one of our centers and also cured a co-tenancy provision. 2 noncomparable leases were completed this quarter, including a space that has not been leased since acquisition, at an average rental rate of $18.65 per square foot. While our total new lease ABR is at $10.98 per square foot, this rental rate increases to $13.11 per square foot when you exclude 2 anchor deals executed at rents below $10. The execution this quarter of the backfill of the approximate 60,000-square-foot Bon-Ton box at Trexler Mall with Urban Air and the backfill of a portion of Tops Friendly market box with Tractor Supply were completed at spreads of 95% and 158%, respectively.

Occupancy continues to be a keen focus for team Cedar. As of September 30, 2019, same-center lease occupancy increased 80 basis points to 92.2% over prior quarter. We've spoken in prior quarters about our strong leasing pipeline. Those fundamentals continue. We currently have approximately 60 new deals in our pipeline comprised of both renewals and new deals. The challenge we have is working with the tenants and their respective legal departments through the remainder of this year and holidays to get them executed timely.

Here at Cedar, we continue to advance our redevelopment platforms. As we have discussed in previous earnings calls, we have 2 platforms: our value-add renovation platform and our mixed-use renovation platform. On the value-add renovation side, we announced the official groundbreaking of Fishtown Crossing, formerly Port Richmond shopping center, in Philadelphia, Pennsylvania on October 3, 2019. This was celebrated with an event on site attended by local dignitaries, politicians, the community and members of team Cedar. It received press coverage from ABC, NBC, Chain Store Age and GlobeSt, to name a few. The demolition of [the small shop] building on Aramingo Avenue has occurred and construction is underway. We are in discussions with multiple tenants on the remaining small shops, and the project is expected to stabilize in 2022.

Yorktowne Plaza in Cockeysville, Maryland is now fully entitled. Leases are executed with IHOP for a relocation into a new prototypical restaurant on a [path side] location and Panda Express is fully executed. There are executed LOIs with several restaurants that will be new to the area and will bring vibrancy and enhance traffic to this grocery-anchored center. The leasing strategy is allowing space to be occupied and leased at market rents in historically difficult-to-lease and/or interior corner space while simultaneously providing new restaurant, entertainment and retail concepts to the market. This project is expected to stabilize in 2023.

Our other value-add renovation project Carman's Plaza is nearing completion. The facade renovation site work is complete. 24 Hour Fitness, Popcorn Beauty and Key Food are open. New leases have been executed with Phenix Salon, Voodoo Crab and many other small shops to round out the small shop lineup. There is one junior anchor under executed LOI and 4 available small shops, for which we are in active discussions with potential tenants. The project is anticipated to stabilize in 2022.

Additionally, we have 3 projects in our mixed-use platform. South Quarter Crossing has had a lot of positive momentum this quarter. The project scope includes 800,000 square feet of retail and 2 mixed -- 2 5-story mixed-use buildings that comprise 277 residential rental units. Through the anticipated lease-up, ABR at South Quarter Crossing is projected to increase from $13.93 per square foot to an amount approaching $20 per square foot. As mentioned last quarter, zoning approval which creates the overlay district to allow residential was successfully signed by the mayor in July 2019. The project also received the Pennsylvania Department of Environmental Protection's release allowing for residential development. There is one additional review approval needed for us to be fully entitled for the project. The first phase of the multiphase project is scheduled to begin in late 2019.

[Revelry], formerly Riverview Plaza, in Philadelphia, Pennsylvania is also planned for ground-floor retails, residential above and requires no zoning variance. We are in final lease negotiation with a movie theater anchor and are continuing to refine our entertainment-restaurant-merchandising mix. The project is expected to commence in early to mid-2021.

Lastly, Northeast Heights, the combination of East River shopping center and senator square in Washington, D.C. will be a catalytic investment east of the river, and we're excited to see the elements of this neighborhood revitalization come together. Leasing efforts for the anchors and small shops continue and the project is scheduled to commence in late 2020, early '21.

Team Cedar is energized by the prospect of creating vibrant neighborhoods with the goal of ultimately enhancing value for our shareholders.

With that, I will give you Phil.

--------------------------------------------------------------------------------

Philip R. Mays, Cedar Realty Trust, Inc. - Executive VP, Treasurer & CFO [5]

--------------------------------------------------------------------------------

Thanks, Robin.

I'm going to add just a few brief highlights to Bruce's and Robin's remarks and then open the call to questions.

Starting with operating results. For the quarter, operating FFO was $10.6 million or $0.12 per share compared to $10.2 million or $0.11 per share in the preceding quarter. Excluding redevelopment properties, same-property NOI, when compared to the comparable quarter in 2018, increased 0.7%. When redevelopment properties are included, NOI decreased 0.7%, primarily driven by the decommissioning of spaces at several properties to facilitate our redevelopment plans for these properties. In particular, much of this redevelopment activity is occurring at South Philadelphia Shopping Center.

Moving to the balance sheet. There were no property dispositions and no common shares purchased under our common stock repurchase plan. We ended the quarter with debt-to-EBITDA of 8.1x and approximately $115 million available under our revolving credit facility. Further, we have no debt maturing until 2021.

And finally, guidance. We are reaffirming our full year operating FFO per share guidance range of $0.44 to $0.45 per share. The key assumptions related to this guidance are detailed in our press release and remain unchanged from the previous quarter, except for property dispositions. We now expect dispositions for the full year to be approximately $25 million.

And with that, I open the call to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from Collin Mings, Raymond James.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [2]

--------------------------------------------------------------------------------

First one for me and I may have missed this, Bruce, but -- or maybe misinterpreted it, but just in the prepared remarks, I believe you referenced some softness in the transaction market. Can you maybe just clarify or elaborate on that comment?

--------------------------------------------------------------------------------

Bruce J. Schanzer, Cedar Realty Trust, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Sure. Just we've gotten reports that the volume of sales in our footprint is down meaningfully year-over-year. So -- whereas, last year, at this point in the year, I believe there were 23 sales. At this point this year, there have been fewer than 10 sales, I believe, 8 or 9 sales. And that was what I was alluding to.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [4]

--------------------------------------------------------------------------------

Got it. Understood. I mean maybe just continuing on that point, have you seen that reflected in any pricing? I know, again, a few quarters ago, you put together some very interesting slides that just kind of highlighted the value in some -- of some of the properties that have transacted. So I'm just curious, have you actually seen that show up in pricing. Or is it just volume?

--------------------------------------------------------------------------------

Bruce J. Schanzer, Cedar Realty Trust, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

We do continue to update that slide. It's part of our corporate presentation. I would tell you that, the fewer data points that we have, the harder it is to draw an inference about cap rate trends since each transaction has its own idiosyncratic qualities that allow one to potentially differentiate it, whether it's a positive inference or a negative inference. And when you have a lot of data points, of course, those idiosyncrasies are overwhelmed by just the magnitude of the data. With 8 data points, I would tell you that we can't really draw a meaningful inference about cap rate trends one way or the other. I -- all I would say is that, clearly, right now, there is a lull in the amount of volume in our market. That's really all that we can say for now. But again, that's what I was referring to in my prepared remarks.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [6]

--------------------------------------------------------------------------------

Okay. Appreciate that. Robin, just in the prepared remarks, [again], you discussed the Fishtown Crossing. And I believe, last quarter, you referenced some of the jumps in rent you were witnessing or were poised to get there. Just maybe can you just elaborate a little bit more on where pre-leasing on that project stands? And now that the official groundbreaking has occurred, just any additional details you can kind of update us on that front would be helpful.

--------------------------------------------------------------------------------

Robin McBride Zeigler, Cedar Realty Trust, Inc. - Executive VP & COO [7]

--------------------------------------------------------------------------------

Sure. As we've announced previously, the executed leases at Fishtown are with Starbucks and Nifty Fifty. There are several other leases that are in various stages of negotiation at the property. The small shop rents there range between anywhere from the low 40s and up from there. So we're seeing a hefty increase from the in-place rents of what was there previously after the renovation -- or the announcement of the renovation.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [8]

--------------------------------------------------------------------------------

Okay. And then one thing I did want to circle back to, and then I'll turn it over. But Bruce, just earlier this year, you did make reference to potentially exploring JV partners, at least at potentially one of your redevelopments. Just maybe any update now as several months have passed, any sort of update you can provide on that? And particularly in context of the reference you made to the dislocation in the stock price in your comments earlier.

--------------------------------------------------------------------------------

Bruce J. Schanzer, Cedar Realty Trust, Inc. - President, CEO & Director [9]

--------------------------------------------------------------------------------

Sure. The comment on the share price is unrelated to our pursuit of a potential joint venture partner. The more significant consideration in looking for a joint venture partner, candidly, is the incredibly deep availability of capital construction financing at attractive terms that really overwhelms the benefits of doing a joint venture. As you might imagine, joint ventures require a fair amount of give and take and negotiation. And almost inevitably what happens is the developer will get a benefit on the back end in exchange for making sure that the investor, the joint venture partner has greater certainty of return on the front end. And the luxury of the financing that's available, it's so cheap and so flexible that even our joint venture prospective partners we were talking to were asking why we would consider doing a joint venture which for a company such as Cedar, even as small as we are, would still represent a relatively modest amount of incremental capital in the face, again, of the very attractive financing that was available to us. And ultimately, we concluded that while we're still open minded about doing joint ventures and could potentially explore them in the future, again depending on what happens in the financing environment and also depending on what our capital needs are at a point in the future where potentially we're undertaking more than one project, for right now, again considering the construction financing market, we concluded that, that was the better place to focus on for purposes of figuring out how to capitalize our first redevelopment project.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question is from Todd Thomas, KeyBanc Capital Markets.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [11]

--------------------------------------------------------------------------------

I just wanted to ask about the same-store NOI growth. Good to see it moving in the right direction here. So you're down roughly 30 basis points year-to-date, and I know the guidance has a relatively flat forecast for the full year. I'm not sure if there is really a range there sort of baked into that guidance. But thinking about the fourth quarter and then also sort of thinking about 2020, is it your expectation that we would continue to see that metric, same-store NOI growth, improve from here?

--------------------------------------------------------------------------------

Philip R. Mays, Cedar Realty Trust, Inc. - Executive VP, Treasurer & CFO [12]

--------------------------------------------------------------------------------

Todd, this is Phil. We didn't give a range. We just said relatively flat for the full year. We're still comfortable with relatively flat for the full year. And you know what I'm going to say next because I say it all the time when we talk about the same-store pool, which is substantially the vast majority of our properties is a very small dollar amount of the pool, right? So for any given quarter, the POI is about $20 million. So 100 basis points is just $200,000. So little things can move it quickly and have a large impact. For 2020, we've not given any guidance. A lot of the things that are causing the difficult comparable period such as the Fallas vacate that happened and the Bon-Ton all are burning off. So we won't have this type of comparable periods. But again, it's a small pool and little things can move it. So we'll wait, and we'll give guidance on that on our next call.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [13]

--------------------------------------------------------------------------------

Okay. Understood. In terms of let me ask about maybe base rents a little more specifically. So you have 170 basis points spread between leased and occupied space in the portfolio. It's a little wider than it's been. And your leasing, as you commented, has been improving. Do you have some larger commencements that are scheduled to take place before the end of this year that we should be thinking about?

--------------------------------------------------------------------------------

Philip R. Mays, Cedar Realty Trust, Inc. - Executive VP, Treasurer & CFO [14]

--------------------------------------------------------------------------------

I think I'm not sure about the specific commencements there. When we do the same store, we do it on a cash basis. So just the lease moving to occupied, obviously, is a favorable thing. But it takes -- sometimes, it's [re-rent] periods, and it takes a little while for that to kick in and, as you know, not that -- the year is almost over, Todd. So I don't think there is anything that's going to cause like a dramatic change in same store in the last quarter as compared to this quarter.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [15]

--------------------------------------------------------------------------------

Okay. And with the comments around dispositions, just following up there. I guess you do have a few assets on the market or held for sale and you're having discussions with investors. So I'm just curious. I understand that maybe transaction volumes are down in your markets, but in terms of the general level of interest from investors, can you comment on that? And then do you have a sense for timing at this point on the potential sale of Carll's Corner and Suffolk Plaza?

--------------------------------------------------------------------------------

Bruce J. Schanzer, Cedar Realty Trust, Inc. - President, CEO & Director [16]

--------------------------------------------------------------------------------

Sure. So the -- while they are juxtaposed, they are unrelated. The assets that -- haven't yet sold through very asset-specific reasons unrelated to the more general dynamic of there being slightly reduced volume that we've observed this year. Well, obviously, that volume has impacted our sales process as well in the sense that we're contributing to the lower volume. That said, the Suffolk asset is under contract -- all right. Pardon me. I should say that it's we have a contract and we're trading comments. And so we're at a juncture where we can see a finish line. Of course, nothing is done until it's done. Carll's Corner is a very, very small asset that's going to eventually be sold for a modest amount, and we're just working through some practical issues there that we need to resolve before we can sell the asset. But again, it's on our held for sale, but it's not going to be a meaningful contributor to anything other than just eventually being removed from the list. And the last asset that we have hanging out there is in Western PA. It's really not even in the market that I was describing as having reduced volume, and we've just been waiting to finalize a lease there before we bring it to market. So again very specific facts around our particular assets being sold. And the fact that they haven't sold is unrelated to this larger trend that I observed or that I commented on [about just there] being less volume of asset sales in the most recent period.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [17]

--------------------------------------------------------------------------------

Okay. And just one last one for Phil. The guidance included this year that $750,000 related to the community outreach and some marketing costs. Is that expected to continue in 2020?

--------------------------------------------------------------------------------

Philip R. Mays, Cedar Realty Trust, Inc. - Executive VP, Treasurer & CFO [18]

--------------------------------------------------------------------------------

Yes. I mean it will probably -- it's across a couple of our redevelopment properties. The run rate is probably a decent run rate also for next year. Just the processes related [to it] will change as we kind of get further along on some redevelopments and start to ramp up others. But the run rate for this year and next year should be fairly consistent.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

We have reached the end of the question-and-answer session, and I will now turn the call back over to Bruce Schanzer for closing remarks.

--------------------------------------------------------------------------------

Bruce J. Schanzer, Cedar Realty Trust, Inc. - President, CEO & Director [20]

--------------------------------------------------------------------------------

Thank you, operator. Thank you for joining us this evening and for following our company. We look forward to continuing to report good news in the months and quarters ahead.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.